Nassim Taleb has shaped my thinking more than any other author.
Love him or hate him—his arrogance rubs many people the wrong way—his books have changed the way many people see the world.
One of the things he showed me is how poor we are at predictions.
We like to think we can predict things because it helps us understand the world, and make it seem less scary.
It’s not a pleasant thought to think that much of the world might be random, and that our lives are unpredictable.
And so it's natural to believe experts when they predict an outcome. The weather for next week, or the stock market outlook, or climate change.
But the numbers don’t bear it out. Most predictions would be better determined by a coin flip.
The reason we continue to believe our predictions is the story we construct afterwards.
“If this had been slightly different, then the prediction would have been correct…”
Those stories sound good, except they aren’t true. Keep a diary, and you’ll realize how much we infer afterwards that we didn’t know at the time.
Our tendency to construct a story explaining things after the fact is called the narrative fallacy.
If we can't predict things, why do we plan?
Some people argue that it’s better to have a poor plan than none at all.
But the problem with plans is that we tend to believe them. We’re wired for it.
We don’t deal well with probabilities and confidence levels, and so it’s difficult to convey that a plan only has 50% certainty. Or that we don’t know what the certainty is.
The reason it’s important to acknowledge that we can’t predict things is we can change how we act.
Instead of building a plan that will soon be irrelevant, we can accept the unpredictability and plan accordingly.
This changes how we allocate resources, whether it's our personal time and money, or resources like team members and budget.
It changes the frequency with which we update our plans, and revisit our initial assumptions.
And it moves us slightly closer to reality, even if that reality acknowledges that we don’t know.
We may not be able to change how good we are at predictions.
But we can change how confident we are, and make better decisions as a result.